Past meets present
The merger of two companies with long histories creates new business opportunities
By Rich Vurva
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"There are many areas that we are just beginning to explore in terms of how we might cross-sell products," says Darrell Cole, UDG president/CEO. |
The United Distribution Group has the distinction of being one of the nation’s newest industrial distribution companies, yet still boasts of a storied past. UDG was formed
when United Central Industrial Supply, headquartered in Bristol, Tenn., and Houston-based GHX Industrial LLC, joined forces in October 2012. Headed by president and CEO Darrell Cole, UDG was created following the merger to manage the two distribution companies and their subsidiaries. Each company has a long history of successful service to their respective markets and both companies were also active acquirers in their industries.
With 36 years in the distribution industry, Cole was previously president and CEO of United Central. The company prefers not to reveal its annual sales, but describes itself as the largest industrial distributor in North America primarily focused on serving the mining industry. Founded in 1974 as United Supply, it operates 26 locations throughout the U.S. and Canada with close proximity to mining operations. Over the years, it has completed 12 acquisitions, including National Mine Service of Canada, a Saskatoon, Saskatchewan, supplier of mine safety products to the Canadian mining industry, and Gooding Rubber, headquartered in Woodridge, Ill., a distributor of industrial rubber products to mining and industrial customers in the Midwest. The acquisition of Gooding allowed United Central to establish a greater presence in the hose and accessories distribution market, and served as an impetus to seek additional merger and acquisition opportunities within that industry.
“Our primary focus has been in the coal industry where we got our start, but we serve other mining industries as well, including the trona patch in southern Wyoming, pot ash mines in Canada and New Mexico, and gold and silver mines in Nevada,” says Cole. Trona is a relatively rare sodium-rich mineral found in the United States, Africa, China, Turkey and Mexico. Sweetwater County, Wyoming, is a major contributor to the total world production of trona, which is mined and then processed into soda ash.
Since UDG was formed, Henry Looney, formerly the company’s senior vice president of sales and marketing with 31 years of industry experience, was promoted to president of United Central.
The merger with GHX enabled United Central to fulfill its strategic goal of expanding its footprint into the industrial hose business. With 40 locations, GHX is a fabricator and supplier of industrial fluid transfer and sealing products to both the upstream and downstream energy markets. The upstream market involves energy exploration and production while the downstream market refers to refining, selling and distribution. The company also serves OEMs and has a significant presence in the marine, petrochemical and agriculture industries. It has completed many acquisitions since it was formed in 2007 by a management group with backing from private equity funding. GHX companies trace their history to 1927, and include Robsco, a Houston-based distributor of high-pressure rotary drill hoses, and McCarty Equipment, an Abilene, Texas-based wholesale supplier of belts, hose, valves and other items to oilfield supply companies.
Former GHX founder and executive chairman Dan Aheuro now serves as vice president of mergers and acquisitions for UDG, while Benjamin Andrews, also a founder and former executive vice president of GHX, is UDG vice president of corporate development. Richard Harrison is president of GHX. All three have more than 30 years of experience in the industrial hose supply industry.
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"Most companies don't have the type of a culture where they can retain very good, knowledgeable, well-trained, educated employees. That is a huge aset when you are in a position to do that. We are very fortunate to be in that position," says Carl Mallory, director of marketing. |
“Most companies don’t have the type of a culture where they can retain very good, knowledgeable, well-trained, educated employees,” says Carl Mallory, director of marketing. “That is a huge asset when you are in a position to do that. We are very fortunate to be in that position.”
With financial backing from private equity firm American Securities Capital Partners of New York, UDG plans to continue making acquisitions in each platform company. In December, GHX acquired Express Hose & Fittings II in Phoenix, which primarily serves the Arizona mining industry. Cole says future acquisitions of distributors focused on mining and the oil and gas industries are likely, but doesn’t rule out expansion into other market groups as well.
“Our strategy today is to grow those specific industry segments, but who knows what might come along tomorrow. We are wide open to opportunities,” he says.
Organic growth plans
Cole also anticipates organic growth for UDG, especially with cross-selling opportunities. For example, Express Hose can leverage United Central’s expertise by introducing mining supplies and safety products to its mining customers, while United Central can benefit by leveraging the hose knowledge of the GHX companies to its customer base. The growth in natural gas exploration and hydraulic fracturing, or fracking, in the United States is also creating new opportunities.
“There are many areas that we are just beginning to explore in terms of how we might cross-sell products,” Cole says.
He anticipates that the process to integrate the two companies will take up to a year to complete, and expects to see cost savings benefits from shared administrative services, and operational gains as a result of sharing best practices. The companies currently operate on separate ERP systems, and UDG is studying the best way to consolidate processes without disrupting service levels.
“We want to be careful that we are not taking on too many projects,” Cole says. “Some companies have really made some major mistakes by taking on too much. As always, customer service remains the highest priority for both United Central and GHX.”
Because they served unique markets, there is very little overlap between branch locations, so Cole doesn’t anticipate much branch or employee consolidation.
“From a shared service perspective, we can become more cost efficient in what we do compared to competitors. We certainly expect to see combined purchasing where we have overlapping vendors,” he says.
During the due diligence process before the merger was completed, Cole said he was pleased to discover how many business philosophies the companies shared. “In both companies, there is a major focus on service to the customer and a desire to not be just like the crowd. We want to differentiate ourselves in terms of how we provide better service to the customer, and offer the best product lines and services that our customers need,” he says.
In addition to a broad product lineup – the company represents about 2,100 manufacturers, carries 140,000 line items and operates more than 300 delivery vehicles – UDG also offers a variety of other services tailored to customer needs. For instance, United Central operates service centers in Virginia and Colorado that provide factory-authorized repairs of electrical and electronic products and offers customer training to help maximize mine productivity. GHX provides customized fabrication of its fluid sealing and transfer solutions, offers hose testing and certification, on-site application surveys,
lubrication equipment repair and custom kitting.
“We are in a unique position,” concludes Mallory. “Because of the size of our geographic footprint and the depth and breadth of our product lines and manufacturing partners, we find that – even when there is a downturn in the industry – that is when we are able to put our expertise and our relationships with customers to use to grow market share.”
This article originally appeared in the Jan./Feb. 2013 issue of Industrial Supply magazine. Copyright 2013, Direct Business Media.
INDUSTRIAL SUPPLY MAGAZINE
The November/December issue of Industrial Supply magazine features an in-depth cover story about Kimball Midwest. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and Mike Marks, as well as interviews with numerous product and distribution industry experts.
